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The Risks and Rewards of Self-Managing Investment Portfolios

NYT article by John F. Wasik

finc freedomWhen Ken Kavula of Genesee, Mich., retired from his job as a high school principal at age 53, he decided to defy conventional wisdom and manage his own financial life — including his retirement accounts and a mix of stocks and bonds he had either accumulated on his own or inherited.

Fifteen years later, Mr. Kavula, now 68, has ridden the huge highs and crushing lows of the markets so well that he has enough to live off, for now, without even tapping some accounts.

Although he had no professional money management experience or investment credentials, he was far from a newbie to the complexities of financial management when he retired. He had been studying investing for years and had been a member of several investment clubs since the late 1980s.

“That gave me confidence I could make money on the money I had,” Mr. Kavula said.

There are good reasons for retirees to manage their own financial lives: Saving money on fees is one benefit, and more closely aligning investments with personal goals is another.

But there is dangerous ground along the way: Taxes, estate planning, rules around gifting to relatives, timing of withdrawals from retirement accounts and other issues can be immensely complex and are getting more so.

Although retirement confidence has been rising somewhat since the end of the last recession, it’s still shaky. A recent Deloitte Center for Financial Services study found that “45 percent of respondents felt ‘very secure’ in having enough savings and income to maintain a comfortable retirement lifestyle, a sizable jump from the 28 percent in Deloitte’s initial survey in 2012.”

For those who are reluctant to go it entirely alone, a growing alternative for retirees is the model of do-it-yourself investing done through so-called robo-advisers. After you enter your risk tolerance and other information in an online form, a software program automatically creates a portfolio of low-cost exchange-traded funds. It’s a way to avoid paying commissions or being tempted by brokers pushing you into investments you do not quite understand.

Betterment, Personal Capital and Wealthfront started the robo-adviser model. Not to be outdone, more traditional firms have entered the arena. The discount broker Charles Schwab, for example, introduced its Intelligent Portfolios robo-adviser in March.

Yet the new generation of automated portfolio managers may not be suitable for retirees who have complex financial needs.

One of the biggest concerns that human advisers have when it comes to their algorithmic alternatives is how investors will use them during market downturns. Skittish retirees may make some costly timing decisions by selling at the wrong time.

“These programs are still in their infancy, said Tom Balcom, of 1650 Wealth Management in Lauderdale-by-the-Sea, Fla. “Will investors sell out and change portfolio allocations when they’re scared?”

Another issue retirees can face is how to make withdrawals from retirement accounts in the way that minimizes taxes. Given the choice of withdrawing funds from a 401(k), Roth I.R.A. or a conventional I.R.A., for example, which would produce income subject to the lowest tax?

Few, if any, robo-advisers provide this service, and it is a difficult question for investors, although some automated options do provide tax-loss harvesting services to lower tax bills.

But financial transactions with large tax implications often need the guidance of someone with extensive experience in financial planning, especially for investors with multiple retirement accounts.

“I had a 62-year-old client who retired and went to a discount broker,” said Carolyn Walder, a certified financial planner with Lifetime Wealth Planning and Management in Alexandria, Va. “They advised him to take his income from his I.R.A. instead of from his individual brokerage account, which had a lot of capital losses built up from the 2000 to 2002 tech debacle,” Ms. Walder added. “That move cost him about $15,000 in taxes that he did not have to take. They were doing it all wrong.”

But advisers might create more problems than they solve, in addition to costing more than the solo strategy. Roy Chastain, 69, who had retired from his job as a lawyer for the state of California, originally chose to work with a large brokerage adviser, but called it a “disaster.”

“I didn’t have a large portfolio, and they offered me products and limited advice,” recalled Mr. Chastain, who lives in Sacramento. “They were more salesmen than analysts.”

Like Mr. Kavula, he now manages his own portfolio of individual stocks, mutual and exchange-traded funds. He has been a member of an investment club since 1994.

A solution could be to combine do-it-yourself management with human help, by using an adviser to set up a portfolio that you would then monitor and control. This approach, using a mix of E.T.F.s and mutual funds, can save money in fees, but the price goes up if you give in to likely efforts from advisers to push you toward more active management.

“Brokers have an incentive to go to active management to add value,” said Chris Chen, a fee-only adviser with Insight Financial Strategists in Waltham, Mass.

That often translates into higher fees and expensive mistakes. Mr. Chen said that when one of his clients was with another broker, “he paid 2.7 percent in fees, which included advisory and mutual fund expenses,” he said. This compares “to about 1 percent to 1.2 percent annually for an E.T.F. portfolio that includes advisory fees and E.T.F. costs. A lot of decisions go into constructing a portfolio. There are so many moving parts.”

Yet another option is a model that combines the call-in services of a financial adviser with the ability to use online tools. Such a hybrid model was recently announced by the Vanguard Group, the large mutual fund company.

Vanguard’s Personal Advisor Services, available to clients with at least $50,000 in assets, charges a 0.30 percent annual advisory fee, in addition to mutual fund or E.T.F. management expenses ranging from 0.05 percent to 0.19 percent annually.

Still, there’s nothing wrong with managing your own low-cost portfolio, as long as you understand the risk involved and can find help for any additional financial concerns. Before setting out on your own, it is wise to ask — and answer — several questions to determine what you’ll need to complement your financial skill set.

“What’s the complexity of your needs?” asked Robert Stammers, director of investor education for the CFA Institute, a group that represents investment professionals. “What’s the cost of making a potential mistake?”

For example, what if you need to integrate an investment strategy with a tax and estate plan? You will probably need to work with an estate planning lawyer and financial adviser to ensure that everything aligns with your intentions.

You will also need to be honest about your ability to confidently stick to your investment policy, which is a written plan on how much risk you want to take in all market conditions. Will you sell when the market goes south or buy more stocks?

There are many tools online that will help you make the best spending, withdrawal and tax decisions on your own. One resource is the nonprofit group BetterInvesting, which provides educational support on stock investing and investment clubs, and which has chapters around the country.

But advisers say a little bit of hand-holding can go a long way, as can joining forces with other investors.

For his part, Mr. Kavula, who speaks across the United States to help educate investors, has joined clubs affiliated with BetterInvesting.

His advice? “Don’t try to hit a home run and don’t be greedy. Be patient on your way to investing. People heading in and out of the market won’t be successful.”


Posted by:  Steven Maimes, The Trust Advisor

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How to Plan a Last Minute Excursion

Article from the Huffington Post

Recent surveys reveal that Americans only use 51 percent of their eligible paid vacation days and other time off — which, if you think about it, is ridiculous: You’re getting paid to go on vacation!

Even if you don’t have a destination in mind, seize the moment and treat yourself to the trip of a lifetime. You can plan a stellar trip in less than 48 hours. Really.

We’ve partnered with State Farm to give you everything you need to plan a last-minute, spontaneous getaway.

What are you waiting for?



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B.B. King: 15 Children and Potentially a Big Legal Mess

Washington Post article by Justin Wm. Moyer

B.B. King insisted: “Every Day I Have the Blues.” But for a guy who had the blues every day, King, who died last week at 89, was remarkably laid back. Even though he toured endlessly. Even though he held a lifelong responsibility as a blues “ambassador.” Even though he was a philanthropist. Even though he was a diabetic. The stress, it seemed, just never got to him.

And when someone said they were going to have his baby, that was okay, too.

“If a woman I’ve been with says the child is mine, I don’t argue,” King wrote in his memoir, “Blues All Around Me.” “I assume responsibility. As I got older, that responsibility grew.”

The final tally: 15 biological and adoptive children — 11 of whom survived King — and, now that the King is gone, potentially a huge legal mess. Even as members of King’s family gathered in Las Vegas to say goodbye, there seemed to be blues all around them — in the form of past, present and probably future legal squabbles about his estate with his representatives.

“I don’t want to fight with family,” Shirley King, King’s eldest daughter who performs as “Daughter of the Blues,” said, as the Associated Press reported. “I don’t want to fight with management. … When everybody gets through being sad about him leaving, I want them to come out and let the good times roll and be happy about his life.”

But, according to the AP, King’s longtime business agent, LaVerne Toney, said all the family’s love was in vain.

“They want to do what they want to do, which is take over, I guess,” Toney said. “But that wasn’t Mr. King’s wishes. Mr. King would be appalled.”

Even as Toney sanctioned a public viewing — sans media and photos — for Friday ahead of a funeral Saturday, the squabbling continued. King’s family even had to gain approval for a final private visit in a probate court.

Toney has power-of-attorney over King’s estate. Even in the days before King’s death, three of his 11 surviving children went to court to take control of the dying bluesman’s affairs, including what they claimed to be $5 million in assets. In allegations that recalled the struggles of Casey Kasem and Mickey Rooney, they accused Toney of stealing King’s money, neglecting his health and preventing the family from seeing him.

A judge said their complaints were without merit.

“I don’t have anything here that says [King] lacks capacity,” Clark County Family Court Hearing Master Jon Norheim said. “He has some serious health issues. But he has counsel. If he feels like he’s being taken advantage of, he has remedies.”

“It’s all about money,” King’s attorney Brent Bryson said. “Mr. King is no longer out able to tour at this particular time so there’s no money coming in. The only way they can get money now is by filing a frivolous type of action.”

“We lost the battle, but we haven’t lost the war,” Karen Williams, one of King’s daughters, said after the family was denied power-of-attorney.

Shirley King, however, did not go to court and said she will be sitting out the legal battle. Instead, she has rented a Las Vegas venue on the Strip and will host what she said will be a free musical tribute to her father.

“I don’t want to be part of the argument over his life,” she said.


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Financial Advisers May Want Money for the Wrong Reasons

MarketWatch opinion article by Antoinette Schoar

bear bullThe world we live in asks us to make financial decisions every day. These range from the inane, such as whether to risk a parking ticket when you stop for one minute to drop off your dry-cleaning, to the highly complex, such as which funds and investment products to pick for your retirement savings.

All of these decisions require risk-return trade-offs. Unfortunately, while people have many opportunities to perfect their strategy concerning parking tickets, the same is not true for the complex and all-important decisions of how to invest retirement savings. By the time you learn whether a retirement strategy was the right choice, it is usually too late to change it.

Not surprisingly then, much research shows that a large percentage of the population is poorly prepared to make these financial decisions on their own.

Typically, when faced with complex and important decisions, we rely on trusted experts for advice. Sick people turn to doctors, those accused of crimes seek the help of lawyers, and the list goes on. These cases all have a common feature: the expert adviser must abide by a strict code of conduct that puts the interest of the client first.

Notably, the same is not true for experts who advise people about their investments.

Many of these professionals are not registered as financial advisers with a fiduciary responsibility to their clients, which means putting their clients’ interest first. Instead, they are registered as brokers who adhere to what is known as a “suitability” standard, which is more vague and only asks brokers to make recommendations that are consistent with the client’s interest.

In addition, the majority of brokers are not paid on the basis of the quality of their advice, but rather on the fee income they generate from their clients. To resort to a medical analogy, this is equivalent to prohibiting doctors from recommending drugs that kill you, while not actually requiring they prescribe the best drugs to cure your disease. Moreover, this would occur in a world where doctors are paid based on the sales generated by their prescriptions. People would be highly concerned to entrust their health to such a doctor.

In a study with my coauthors Sendhil Mullainathan at Harvard and Markus Noeth at Hamburg University we set out to analyze the quality of financial advice commonly given to clients. We sent “mystery shoppers” to financial advisers and brokers in the greater Boston area who impersonated regular customers seeking advice on how to invest their retirement savings outside of their 401(k) plans. The mystery shoppers also represent different levels of bias or misinformation about financial markets.

What we learned is highly troubling. By and large, the advice our shoppers received did not correct their misconceptions. Even more troubling, the advice seemed to exaggerate the existing misconceptions of clients if it made it easier to sell more expensive and higher fee products.

In addition, brokers strongly favored actively managed funds over index funds. In only 7.5% of sessions did they encourage investing in index funds. This is exactly counter to insights from finance research, which suggests that the average investor should choose low-cost index funds over actively managed funds. If fees were mentioned at all, they were usually downplayed in their importance. Financial advisers with fiduciary responsibilities had slightly better performance, since they were more likely to suggest investing in low cost index funds to their clients.

Of course, no one expects financial advisers or brokers to work pro bono. But what is alarming is that incentives seem to be set in such a way as to move clients away from the existing strategy regardless of its merit, i.e., even when they looked at a low-fee-diversified portfolio. As a result, we found that clients end up with worse investment choices, since brokers and advisers are trying to secure financial gain for themselves. This is bad news for savers — including the many baby boomers — seeking to boost their retirement nest egg.

The Obama administration has proposed tighter fiduciary standards to which the investment advice business should be held. Our research suggests that this policy change would be beneficial. Indeed, we found that advisers who have a fiduciary responsibility towards their clients provide better and less-biased advice than those who are only registered as brokers. The former are less likely to move people away from index funds and to reinforce erroneous beliefs about the market.

There is an important additional benefit to a policy that reduces conflicts of interest between clients and their advisers. It also helps in harnessing the market’s competitive forces to the benefit of consumers.

As many financial advisers will point out, if retail investors are poorly informed, advisers who do provide sound financial advice often find it difficult to compete. A striking example is the story of John Bogle, the founder of The Vanguard Group, who introduced index funds to the U.S. market. Rather than rapidly gaining market share with his superior product, Bogle initially struggled mightily and his firm almost went out of business — without proper advice, consumers found it difficult to understand the positive features of index funds.

Holding financial advisers and brokers to higher fiduciary standards is not only good consumer financial protection, but also good market economics. As such, it should have appeal to a wide range of the political spectrum.

- Antoinette Schoar is the Michael M. Koerner (1949) Professor of Entrepreneurship and head of the finance department at the MIT Sloan School of Management.


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Taking the Adviser Out of Advising: Good or Bad?

Crain’s Cleveland Business article by Jeremy Nobile

robo humanRobo-services have potential to disrupt wealth management

Automated investment advice and services, commonly known as robo-advising, may be the first major disruptor to the long-established wealth management industry, according to Northeast Ohio money managers.

While the tech-based services have gained momentum in recent years, many established money managers are still evaluating whether the tool has a role in their businesses.

“We are looking at potentially adding it to our toolbox, but we haven’t found anything compelling enough to make that move yet,” said Ed Bell, president of Cleveland-based investment advisers Gries Financial. “It’s still to be determined how broadly accepted it is by the general public.”

A couple hundred companies nationwide have begun offering the automated advisory services since 2009 when robo-advisers broke into the industry. Some popular online platforms in the budding space include startup groups like AssetBuilder and Betterment. One company, Wealthfront, which largely targets millennial investors, says it manages more than $2.3 billion in client assets.

Charles Schwab, Morgan Stanley and Bank of America Merrill Lynch, meanwhile, are some of the big names now offering some kind of robo-advising component.

Smaller, established adviser firms, which tend to be led by older wealth managers, aren’t making the jump as quickly.

According to the most current data from Corporate Insight, a New York-based financial services research and consulting firm, the country’s 11 top robo-advisers were advising on $19 billion in assets as of December 2014, which represents a 65% increase since the first time the data was collected that prior April.

Corporate Insight analyst Sean McDermott said the surge for robo-adviser activity is partly because 2014 was simply a pivotal year for the emerging industry — early players from 2009 started to mature, and media began paying more attention to the trend.

While robo-advisers control just a small piece of the wealth management industry’s estimated $18 trillion pie, it’s clear investor interest is there and growing.

And advisers are paying close attention.

Removing the person

In robo-advising, a portfolio is set up using an algorithm to help choose investments, commonly a mix of cheap exchange-traded funds. The formula also gauges a person’s risk tolerance.

The portfolios are automatically rebalanced periodically. Some services pair portfolio management with the option for virtual advice from a human adviser. Other value-add services, like automatic tax-loss harvesting, help differentiate them from somewhat similar target date funds.

“I don’t see it as a huge threat, I guess,” said Kurt Camden, director of business development with Vantage Financial Group in Independence. “A lot of our clients want someone to call and talk to, so the autopilot isn’t something we’re looking at.”

A robo-adviser might present an attractive upgrade to younger and do-it-yourself investors who may have started on a discount brokerage platform like E-Trade, though.

Yet, inexperienced, do-it-yourself investors tend to operate counter to basic investing principles, buying high and selling low — investing during periods of buzz and abandoning ship at the first sign of volatility. Advisers say coaching an investor through those emotional reactions is one of their purposes, and it’s one of the reasons advisers contacted for this story say they haven’t jumped to automated services.

“At the heart of all good solutions is the client-adviser, human relationship that can also be there for behavioral coaching, which is particularly important in times of fear and greed,” said John Micklitsch, chief investment officer for Cleveland-based Ancora Advisors. “It’s not clear to us the role that behavioral coaching and guiding clients through inevitable pockets of market volatility has in completely automated robo-solutions.”

A computer program may not be able to stop an investor from making a hasty decision as markets ebb and flow, Micklitsch notes.

Still, Wealthfront CEO Adam Nash told CNBC earlier this month that behavioral errors and emotional trading “are two things we think computers can really help with.”

How robo-advising can marry automated solutions with the benefits offered through a personal relationship with a human adviser, it seems, is the trillion-dollar question all money managers are asking themselves.

“When you have multiple goals, how do you do that without human interaction? There are only so many things you can completely automate,” said Jeff Malbasa, president and chief operating officer of Spero-Smith Investment Advisers, referencing a client with retirement, college savings and charitable giving managed together. “We don’t automate because every client is different.”

The disruption

Whether established money managers add their own automated components or not, the advent of robo-advising is expected to push some changes in the industry as a whole.

For one, robo-advisers provide new access. Some institutional money managers won’t work with someone with less than $1 million to invest, which is considered the general threshold for a high-net-worth individual. Robo-advisers — which McDermott notes tend to promote themselves to tech-savvy millennials who also are more interested in those services — will work with someone with only several thousand dollars.

Zachary Abrams, a manager at Cleveland’s Capital Advisors Ltd., said advisers would be remiss to not at least consider the business opportunities. For a firm like his, a robo-advising component could open it up to new clients, like a millennial with $50,000 to invest. Today, his firm’s average client has around $2 million.

“So this is definitely something on our radar,” he said. “In the future, it could change how we operate.”

Fees for robo-advising vary depending on a variety of factors, but generally tend to rise or fall with the amount of assets being managed. This method also promotes transparency in charges, which is a new trend itself in wealth management, and could eventually create more competition with traditional money managers.

Betterment’s fees, for example, start at between 0.15% to 0.35% of assets managed with higher fees starting at less than $10,000 and lower fees kicking in at more than $100,000. Wealthfront starts at 0.25%, but the fee is waived on the first $10,000.

Comparatively, fees for institutional money managers tend to hover around 1%, give or take, while banks tend to charge around 2%.

The lower costs could be appealing to some, advisers say, but the argument then turns to the value of the service provided.

McDermott said the robo-advising model is likely here to say, but a convergence can be expected.

“There’s a ton of new interest now. The best ones will survive and others will fall by the wayside,” McDermott said. “There will be acquisitions and partnerships and some will go belly up.”

And that may happen with the next market correction, which robo-advisers haven’t been around for yet. In the last downturn, many adviser firms lost clients or folded. But robo-advising was basically nonexistent then.

“It’s largely untested how clients in an automated portfolio with limited access to an adviser … how that model will work in periods of market stress,” Micklitsch of Ancora said.

“Those investors haven’t weathered a storm like the recent recession.”


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A Morgan Stanley Wealth Manager Who Had an Affair With a Client Could Cost the Bank $400 Million

Business Insider article by Jonathan Marino

Morgan Stanley's Ami Forte

Morgan Stanley’s Ami Forte

A high-flying Morgan Stanley investment adviser, Ami Forte, has the bank facing an enormous fine, a source says.

The fine would be the result of a lawsuit filed against the bank by the widow of a multimillionaire client.

The widow is Lynnda Speer, who was married to Roy Speer, cofounder of the Home Shopping Network. He died in 2012. Now Lynnda Speer says the bank overcharged her husband while he was alive.

To complicate matters, there is this: Roy Speer and Forte were having an affair. It started in 1998.

Details of the affair came out in a Financial Industry Regulatory Authority (FINRA) hearing taking place in Florida this month.

A source present at the FINRA hearing says Morgan Stanley could be on the hook for a $400 million loss: $100 million in compensatory damages, and an additional $300 million in punitive damages.

According to an earlier report, Morgan Stanley believed it might be on the hook for a lot less — only $170 million.

The reason the fine may end being bigger than expected is because of a state statute in Florida, the Florida Elder Exploitation Law.

The law allows for punitive damages for exploitation of the elderly. Toward the end of his life, Speer suffered from declining mental and physical health, requiring him to delegate oversight over financial matters to others, including Forte.

“During the last several years of his life, Roy Speer suffered from significant diminished mental capacity, as well as from substantial physical infirmities,” said a representative from Johnson Pope Bokor Ruppel & Burns LLP, lawyers for Lynnda Speer. “He was wheelchair bound and diapered, could not drive, and was attended to daily by a full-time caregiver.”

Lynnda Speer’s lawyers say that from March 2007 until after Speer’s death in 2012, Morgan Stanley, through Forte, allegedly “put through approximately 12,000 unauthorized trades in Mr. Speer’s accounts, generating commissions of nearly $40 million,” according to the law firm’s statement, which was provided to Business Insider.

Lynnda Speer’s lawyers declined to make her available for comment.

“We believe the claims are without merit and we are contesting them vigorously through the legal process,” a Morgan Stanley representative said in a statement.

Ami Forte oversaw between $155 million and $185 million of Roy Speer’s money and assets while he was alive, says a source who attended the FINRA hearing, which is yet to conclude. Business Insider sought Forte for comment, and she did not respond. At Morgan Stanley, according to her bio, “Ami is one of the few female members of Morgan Stanley’s Chairman’s Club, qualifying consistently since 2001.” Morgan Stanley’s Chairman’s Club is reserved for its top wealth-management advisers.

Forte also made the grade in investment publication Barron’s, which named her among its top-100 financial advisers several times. She racked up other accomplishments as well.

A source says that while Lynnda Speer was aware of her husband’s dalliances, she neither approved — nor was willing to divorce him.

According to a source present in the hearing, it was acknowledged that Forte “had a unique relationship with Mr. Speer.” The source added: “It was well known in the community that they were having an affair.”


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BB King Heirs to Challenge Bluesman’s Will and Actions of Manager

bbkingLawyer for daughters and other heirs alleges business manager misappropriated millions, had been untruthful and was unqualified to be executor

A lawyer representing a group of BB King’s heirs said on Saturday they would challenge the blues legend’s will and the actions of his longtime business manager-turned-executor of his affairs.

Attorney Larissa Drohobyczer issued a statement early on Saturday, just hours before a private memorial service in Las Vegas.

King was 89 when he died at his home in Las Vegas earlier this month. Fans lined up for a public viewing of his body on Friday. His body will be flown back to Memphis, Tennessee, on Wednesday. A tribute is scheduled that day at WC Handy Park on Beale Street.

A public viewing is scheduled for Friday at the museum that bears his name in Indianola, with a funeral on Saturday at nearby Bell Grove Missionary Baptist church. He will be buried during a private service on the museum grounds.

Drohobyczer’s statement alleged that LaVerne Toney had misappropriated millions of dollars, had been untruthful, had “undue influence” and was unqualified to serve as executor of the estate.

Drohobyczer says she met with five adult King daughters – Patty King, Michelle King, Karen Williams, Barbara King Winfree and Claudette King Robinson – and several other heirs before issuing the statement.

Toney told the Associated Press that she was not going to immediately respond. She said she hoped Saturday’s memorial would be calm, peaceful and respectful.

Hundreds of fans, meanwhile, were expected on Sunday at the 35th annual BB King Homecoming Festival, a free gathering that the legendary bluesman started in his hometown, Indianola.

Performers were scheduled to include a country blues band called the North Mississippi Allstars; a Bentonia, Mississippi, blues guitarist and singer, Jimmy “Duck” Holmes; and a children’s choir based at the BB King Museum and Delta Interpretive Center in Indianola.

King played at the free festival dozens of times. He drew a larger than usual crowd in 2014, which was already billed as the final homecoming performance for the King of the Blues.

While King was alive, organisers were planning this year’s event as a tribute to him. Since his death on 14 May, they have called it a memorial celebration. The festival is held on the grounds of the museum that opened in 2008.

“We certainly will miss his infectious smile and warmth this year, but we have no doubt he would want us to carry on with this tradition,” the museum’s executive director, Dion Brown, said in a statement.


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Financial Adviser to Stars Found Guilty in $11.3M Fraud Case

Sacramento Business Journal article by Mark Anderson

The man who is still under indictment for allegedly conning Eddie Murphy’s ex-wife out of $7 million was found guilty by a federal jury Tuesday in Sacramento in a separate federal fraud case for conning a financial adviser out of $11.3 million.

Troy Stratos, 49, was found guilty of four counts of wire fraud and two counts of money laundering related to $11.3 million he took from an East Coast financial adviser for a scheme to buy pre-initial public offering Facebook stock.

According to court records, Stratos told the adviser that he represented Carlos Slim, one of the world’s richest men, and that he was buying a large block of Facebook stock for Slim. In that process, Stratos told his victim, he would have excess stock which he cold sell at favorable prices. The adviser sent three wire transfers for a total of $11.25 million to buy the shares.

Stratos continued to tell the financial adviser that the deal was still happening, but Stratos had spent nearly all of the money, according to court records.

The Federal Bureau of Investigation arrested Stratos in Los Angeles on Dec. 20, 2011, for a separate fraud scheme. That scheme involved Nicole Murphy, who used to live in Granite Bay. Both cases are being tried in federal court in Sacramento because the initial allegations occurred in Granite Bay, where Stratos allegedly defrauded Nicole Murphy of part of her divorce settlement.

Nicole Murphy and Eddie Murphy divorced in August 2005 after a 12-year marriage.

In 2006 and 2007, Stratos allegedly began working as a financial adviser to Nicole Murphy. He told her he invested the money overseas to get high interest rates. He is alleged to have spent the money for his own personal use. Stratos still faces a criminal trial in the Murphy case.


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Elon Musk’s Ex-Wife on Secret to Getting Rich: ‘Be Obsessed’

CNBC article by Robert Frank

Justine Musk, the ex-wife of billionaire inventor Elon Musk

Justine Musk, the ex-wife of billionaire inventor Elon Musk

There is no shortage of hypesters and hucksters offering the “secret” to getting rich. The reality is that all kinds of people get rich in all kinds of ways, most of them involving being the right person in the right place at the right time.

Sure, working hard, being smart, overcoming failure and breaking convention can all play a role. But lots of people do those things and never get rich.

Yet billionaires often share common attributes. And one of those traits is eloquently explained by Justine Musk, the ex-wife of billionaire inventor Elon Musk.

In a piece in Quora, Justine Musk said that “extreme success results from an extreme personality,” and that billionaires like Elon Musk or Bill Gates “tend to be freaks and misfits” who developed extreme strategies for survival as kids and later applied those strategies to business.

But their chief characteristic can be summed up in two words: “Be obsessed.”

“If you’re not obsessed, then stop what you’re doing and find whatever does obsess you,” she said. “It helps to have an ego, but you must be in service to something bigger if you are to inspire the people you need to help you (and make no mistake, you will need them).”

She said that people who are obsessed with a problem or issue can work through all the distractions and barriers that life puts in their way. And that obsession needs to be your own, to the point where it borders on insanity.

“Extreme success is not like other kinds of success; what has worked for someone else, probably won’t work for you,” she wrote.

Musk, of course, witnessed extreme success first-hand. And her comments are echoed by other billionaires. In an interview last year, billionaire investor Carl Icahn said the key to being super successful was to be “obsessive.”

“I’ve always gotten into things and don’t give up on them,” he said. “Maybe too obsessed. What I’ve seen is a common denominator for successful people. The common denominator is an obsession.”


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Billionaire Closes 97 Percent of Hotel Rooms on Hawaiian Island of Lanai

Fox News article by Alex Tirpack

hawaiiIn the second half of the year, a slim 11 hotel rooms—that’s 3 percent of the normal volume—will be open for guests on the Hawaiian island of Lanai.

That’s thanks to Oracle billionaire Larry Ellison, who bought 98 percent of Lanai for $300 million in 2012 with a vision: to turn the state’s smallest island accessible to the public into “the first economically viable, 100 percent green community,” reports Road Warrior Voices.

To do that means shuttering the island’s sole resorts, the Four Seasons Manele Bay and the Four Seasons Lodge at Koele, for renovations and to house construction workers; the two have 303 rooms between them.

That leaves only the Hotel Lanai and its 11 rooms available from June 1 through as long as December, when Outside reports the work should be completed.

Ellison bought the Hotel Lanai in July, reported Pacific Business News, which notes it was the only hotel found on the island from 1923 to 1990 and was a one-time destination for execs from the Dole pineapple company.

Outside points out that Hawaiian vacationers need not miss Lanai altogether: It’s a 45-minute ferry ride from Maui’s west side, making one-day trips possible. (Or you could visit one of the 10 best beaches in the US instead.)


Posted by:  Steven Maimes, The Trust Advisor


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